(Petaling Jaya, Friday): Last night, after an emergency UMNO Supreme Council meeting, the Prime Minister, Datuk Seri Dr. Mahathir Mohamad announced that the government would set up a National Economic Action Council (NEAC) to deal with the economic crisis and put the Malaysian economy back on track in the wake of the fall in the value of the ringgit and the stock exchange.
The council, which would be chaired by the Prime Minister, would have emergency powers although a state of emergency has not been declared.
Mahathir said that the NEAC will operate both at the federal and state levels to monitor and to collect information to be utilised for economic activity, and that "Based on the information we gather, we will then create ways and means to co-ordinate and implement economic activities that will benefit the people and country". The NEAC would only be useful and effective in spearheading national economic recovery if the Prime Minister and the Government admit that the country's economic crisis has been severely compounded by many self-inflicted wounds, the latest of which were the UEM-Renong deal which has proven to be a national catastrophe and the announcement yesterday of the government take-over of the highly controversial Bakun hydroelectric dam project from Sarawak tycoon Tan Sri Ting Pek Khiing.
This refusal to admit that the nation's economic crisis had been compounded by many avoidable self-inflicted wounds, leading to a blood-bath in the Kuala Lumpur stock exchange in the last three days, was reflected by the attitude of several UMNO MPs in Parliament yesterday during the budget debate on the Finance ministry, who obstinately insisted that the Thai and South Korean financial crisis were among the causes of the three-day bloodbath in the KLSE after the UEM-Renong deal.
Such obstinate refusal to admit to the self-inflicted wounds fly in the face of the views of both local and foreign analysts. In fact, the fall in the Singapore and Indonesian stock markets yesterday have been attributed by foreign analysts to the "turmoil" and "bearish sentiments" in Malaysia.
Malaysian government leaders seem to have very short memories. After the earlier bloodbath in the Malaysian stock exchange in the last week of August and the first four working days of September, when the KLSE Composite Index fell from 905 points to 731 points, as a result of ill-advised decisions like the designation of the 100 stocks, announcement of RM60 billion fund to prop up shares and the threat of Internal Security Act against analysts and journalists who wrote unfavourable reports, the government suddenly realised the importance restoring investor confidence.
As the economic adviser, Tun Daim Zainuddin, subsequently told Business Week, in his talk with the Prime Minister to get the government to reverse policies which had caused a nine-day plunge of the KLSE CI by 174 points:
The tragedy is that the government has not continued to listen to the investors about the need for corporate transparency, or Malaysia would have avoided the even greater stock exchange bloodbath this week as a result of the UEM-Renong deal which was announced at 8 p.m. on Monday night.
In the three days from Tuesday to Thursday, the KLSE CI was slashed by 130.67 points, with yesterday's 66.87 point drop being the biggest drop for any single-day in the three-month economic crisis - causing losses of some RM70 billion to the investors as a result of the UEM-Renong economic catastrophe. As a result of the collapse of investor confidence, the KLSE CI crashed below the 600-point psychological barrier and opened up the prospect of what was unthinkable only last week, the crash below the 500-point level!
As at the close of trading this morning, the KLSE CI has lost another 15.02 points, bringing the KLSE CI to 521.6. In other words, there has been so much outrage and panic in the market as a result of the UEM-Renong deal that the KLSE CI has fallen by 145.69 points in three-and-a-half days - the most precipitate fall in the KLSE CI for such a short period in the nineties.
The tumble in the market today is ominous as it is testimony of the lack of confidence in the National Economic Action Council announced by the Prime Minister last night.
When the stock exchange opened this morning, there was a brief rally but this could not be sustained. The KLSE CI rose by 23 points in the first 20 minutes of trading but the decline started at 9.50 a.m., levelling with yesterday's close at 10.50 a.m., and falling by another 15.02 points by close of trading at 12.30 p.m.
Is the Government and the proposed NEAC prepared to listen to the investors, admit that the UEM-Renong deal and the government take-over of the controversial Bakun project from Ekran Bhd., have further destroyed the residue of investor confidence in the government's management of financial and economic policies, or will the government continue to look for scapegoats in "rumour-mongers", "anti-national elements" and even "traitors" for the latest bloodbath in the KLSE?
The topmost priority of the Government is to assure investors that the UEM-Renong deal and the government take-over of Bakun project are not a strong signal that more corporate bail-outs could be in store.
Many fund managers have lost confidence in the stock market as any cash-rich company which is closely linked to the government are now regarded as risks.
The UEM-Renong deal has changed all definition of blue chip stocks, as investors are wondering whether blue chip stocks like Telekom, Tenaga, Sime Darby and Maybank could go the way of UEM.
This is why in the three days after the UEM-Renong deal, investors have dumped cash-rich blue-chip stocks, like Sime Darby which fell by 84 sen, Telekom which fell by RM2.40, Tenaga which fell by RM1.80, Maybank which fell by RM2.50, Petronas which fell by RM2.35, Malakoff which fell by RM3.13.